November 23, 2019 Breaking News, Latest News, and Videos

Gasoline Gouging 9.0: Same As Earlier Versions

For the ninth time in the last five years, gasoline prices spiked this fall in California, with per-gallon pump charges briefly leaping above $5.15 at many stations around the state.

The escalation of more than $1 per gallon of unleaded regular was largely masked by bigger headlines devoted to wildfires and massive blackouts staged or threatened by the state’s biggest utilities, but it was very real and still is far from fully receding.

Meanwhile, there was some consumer protection for Californians when the electric companies cut them off in the interest of preventing fires sparked by power lines whose maintenance they neglected for many years. When a blackout, fire or earthquake strikes, state law prohibits sudden price gouging by merchants and service providers.

No such law governs oil companies when they experience gasoline refinery outages, whether they are accidental or deliberately staged – and there is no one now authorized to determine the difference. There ought to be.

For now, no one can formally prove the recent price increases meet legal definitions of gouging, which happens when retailers and suppliers respond to disasters with prices much higher than usual, sometimes rising to the level of being both unfair and unjustified.

Things very likely met that definition this month when prices jumped about 20 percent after seven of the state’s 25 major oil refineries either had scheduled maintenance outages or experienced short-term operational troubles.

No government authority has yet proven collusion between the five big refiners – led by Chevron, Tesoro and Phillips 66 – which control 90 percent of California’s gasoline market, and also own or franchise 80 percent of gas stations. But for them all to raise prices hugely at the same moment suggested some sort of cooperation. They can’t all be running up precisely identical costs at the very same moment.

Consumers can’t help noticing that when the price rises at a Chevron station, it generally goes up the same amount at the Shell outlet across the street, which often pumps Tesoro fuel. That happened this fall and also in the prior price spikes, including one last spring. Gas station operators can’t be blamed very much – this fall, refiners raised the wholesale price stations pay by about 30 cents per gallon, a cost they pass through to customers.

For sure, these sudden price increases increase oil company revenues. Yearly profit statements are not yet in for the big refiners, and only two of the top five break out California results separately from the rest of their worldwide operations.
Still, the last time anyone closely analyzed oil company profits, the Consumer Watchdog advocacy group in 2016 thoroughly documented that record profits for the refiners coincided with record-high pump prices throughout this state.

Some industry spokespeople have cited as one cause for the latest spike the brief drop in world gasoline supplies following the September drone and missile attack on Saudi Arabia’s largest refinery. Worldwide prices did jump sharply just after that, but quickly returned to near previous levels as the facility went back online sooner than expected.

Through all this, California oil refiners have kept their inventories low for many years. The rest of the continental U.S., for example, normally has about 24 days’ supply of gasoline on hand at any moment, while California averages between 10 days’ and 13 days’ supply.

“Because they keep inventories very low, prices rise immediately when anything happens because of concerns over possible shortages,” said Jamie Court, president of Consumer Watchdog. “If it’s illegal to gouge after a natural disaster, why not after refinery problems?”

No one currently watches over any of this. Just after last spring’s gas price spike, Gov. Gavin Newsom asked for an analysis from the state Energy Commission, whose preliminary conclusion was that at least some “market manipulation” was involved. The full report was due out this month.

What’s really needed is a state agency with authority to track oil company prices and profits and clamp down on them when needed. But so far, no state legislator has stepped up to propose anything like that.

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